Prime Minister Narendra Modi on Sunday urged the states to cooperate in implementing the GST reforms’ proposal before Diwali this year.
The draft of the proposal has been circulated to the states by the Centre, he said.
In his August 15 Independence Day speech, the Prime Minister had made reference to sweeping “next-generation” reforms in the Goods and Services Tax (GST) that was introduced in the country in 2017.
With promises of introducing changes in the tax structure that help the poor, the middle-class, as well as small and big businesses, PM Modi said that for his party, “reform means the expansion of good governance”.
“This Diwali, people will get a double bonus from GST reform... I hope that all states will cooperate in the initiatives of the central government,” he said during an event in New Delhi on Sunday, where he inaugurated two expressways.
Also Read: PM Modi promises GST overhaul before Diwali, calls review crucial
The objective of this reform is to make GST simpler and revise rates, he added.
The upcoming reforms include a restructuring of the GST applied on automobiles – which is currently in the highest tax bracket.
Presently, automobiles are taxed at 28 per cent – the highest GST slab – excluding the compensation cess that is levied on top of this rate, which ranges from 1 to 22 per cent, depending on the type of vehicle.
So, the total tax incidence on cars, depending on their engine capacity and length, ranges from 29 per cent for small petrol cars to 50 per cent for SUVs. Electric vehicles are taxed at a 5 per cent rate.
As per the Centre’s proposal for moving the GST system from a four-tier structure to a two-tier rate structure comprising 5 and 18 per cent slabs besides a 40 per cent slab for a select few luxury items, automobiles may now be placed in a slab that puts an end to disputes arising due to their classification by engine capacity and length.
A lower GST rate will also boost demand and sales if cars become affordable, said government sources, thereby increasing consumption and helping the economy grow.
The Centre proposes to do away with the 12 per cent and 28 per cent tax sabs, a departure from its current 5 per cent, 12 per cent, 18 per cent, and 28 per cent categories. Essentials are currently taxed at nil or 5 per cent rate and luxury or ‘sin’ goods taxed at 28 per cent.
The new proposal will be discussed by the Group of Ministers (GoM) on GST rate rationalisation on August 21.
Thereafter, the GST Council, comprising the Centre and state finance ministers, will likely meet next month and approve the final GST rate structure.
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